Competition and property tax limit overrides: Revisiting Massachusetts' Proposition 2ᅡᄑ ¬リニ

a r t i c l e i n f o This paper looks at the role of spatial proximity of other towns' decisions to hold an override vote on the decision of a Massachusetts town to hold an initial override vote under Proposition 2½. We find that if a neighboring town has already held a vote at some point in the past, a town's likelihood of holding an initial vote increases by 10– 15%. A prior vote being successful has a strong impact, whereas losing votes are relatively ignored. The presence of spatial dependence remains when we look at the specific purpose of override vote, or at the annual number of votes that have occurred between 1982 and 2010. This result is consistent across weighting schemes. 2011 represented the 30 year anniversary of Proposition 2½, Massachusetts' voter initiated property tax limitation program. That year 40 towns held 51 override votes, in which voters were asked to increase property taxes beyond the threshold set by Proposition 2½ by nearly 30 million dollars. 20 such votes were successful, resulting in an average $745,000 increase in tax receipts for the winning towns. While the override process is now quite engrained in local governance, 2011 was not a particularly active year; in fact only five years had seen fewer votes. In this paper, we look back to the beginning of Proposition 2½ and ask what caused Massachusetts municipalities to hold their first override vote. In particular, we are interested in the role of spatial proximity in voting patterns; does the fact that a neighboring town held a vote increase the likelihood that you hold a vote in subsequent years? We think that spatial proximity can affect voting via two simple mechanisms: competition and technology transfer. Competition can manifest itself in a variety of ways. In a traditional tax competition framework, a vote in town 1 causes town 2 to hold a vote in order to encourage capital to relocate through the lowering tax rates. On the other hand, towns could also use a vote to indicate a willingness to increase taxes (and hence increased spending on public goods). By engaging in so-called fiscal competition, towns are hoping to encourage Tiebout sorting through these increased expenditures and to attract a higher tax base. Finally, in yardstick competition, a vote in town 1 is used by voters in town 2 to proxy for financial conditions …